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Q1 2013 | RETAIL MARKET

MARKET INDICATORS

Q1 2012 Q1 2013CITYWIDE NET

ABSORPTION (SF) -352,000 397,000

CITYWIDE AVERAGE

VACANCY 7.2% 7.0%

CITYWIDE AVERAGE

RENTAL RATE $14.60 $14.68

DELIVERIES (SF) 197,000 154,000

UNDER CONSTRUCTION

(SF) 561,000 585,000

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Houston’s Retail Market – 0.6M SF Under Construction

Houston’s retail market posted 397,000 SF of positive net absorption in the first quarter,which is significantly less than the 1.1M SF posted in the previous quarter, but is a positivegain from the -352,000 SF posted one year ago. Some of the tenants who opened newlocations during the first quarter include Sprouts Farmers Market, Main Event, MattressFirm, and Freddy’s Frozen Custard & Steakburgers.

Although 154,000 SF of new retail space delivered during the first quarter, Houston’sretail vacancy rate decreased from 7.1% to 7.0% between quarters and from 7.2% overthe year. Currently, there is 585,000 SF in Houston’s retail construction pipeline. Someof those projects include Whole Foods’ newest location in BLVD Place, Costco’s newestlocation in Sugar Land’s Telfair, and the L.A. Fitness located at 4400 N Shepherd Driveand W 43rd St.

The citywide average quoted rental rate for all property types increased from $14.34 to$14.68 per square foot between quarters and from $14.60 one year ago. Houston retailrental rates vary widely from $10.00 to $70.00 per square foot, depending on locationand property type and class.

The Houston metropolitan area added 118,700 jobs between February 2012 and February2013, an astounding annual increase of 4.5% over the prior year’s job growth. Further,Houston’s unemployment fell to 6.3% from 7.3% one year ago, which bolstered annualHouston area home sales by 17.1%. With continued expansion in the energy industry and astrong housing market, Houston’s economy is expected to remain healthy for both thenear and long-term.

ABSORPTION, NEW SUPPLY & VACANCY RATES

RESEARCH & FORECAST REPORT

0%2%4%6%8%10%12%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Absorption New Supply Vacancy

UNEMPLOYMENT 2/12 2/13

Houston 7.3% 6.3%

Texas 7.2% 6.5%

U.S. 8.7% 8.1%

JOB GROWTHANNUAL CHANGE

# OF JOBS ADDED

Houston 4.5% 118.7K

Texas 3.3% 355.6K

U.S. 1.7% 2.2M

JOB GROWTH & UNEMPLOYMENT(Not Seasonally Adjusted)

RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET

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Rental Rates

The citywide average quoted rental rateincreased from $14.34 to $14.68 per SFNNN between quarters and increasedfrom $14.60 over the year.

Class A in-line retail rental rates varywidely due to location and center type.Recent quoted rates for unanchoredstrip centers range from $20.00 -$35.00 per SF (Class B and below canrent for $12.00 to $20.00 per SF)while power centers with three ormore strong anchors range from$10.00 - $35.00 per SF. Lifestylecenters and newly constructed stripcenters in Class A locations such asHigh Street, Uptown Park and TheVintage range from $40.00 - $70.00per SF.

Vacancy & Availability

Houston’s retail vacancy decreasedfrom 7.1% to 7.0% in the first quarter.By product type on a quarterly basis,neighborhood and community centersposted the largest vacancy ratedecreases from 10.9% to 10.6% andfrom 6.5% to 6.3%, respectively. Stripcenters, theme/entertainment, single-tenant, and mall vacancy rates

remained unchanged between quarters.Power center vacancy rates saw thelargest increase between quarters from4.7% to 5.4%.

Houston’s retail construction pipelinecontains 585,000 SF, of whichapproximately 68% is pre-leased. Firstquarter deliveries totaled 153,540 SF.

Absorption & DemandHouston’s retail market posted 397,000SF of positive net absorption in the firstquarter, much less than the 1.2M SFposted in the previous quarter. Theopening of the Main Event in Staffordas well as the opening of the newSprouts Farmers Market in theCypress/Spring area contributed over83,000 SF to the first quarter’s positivenet absorption.

Other notable tenants that moved intotheir space during the first quarterinclude: Arhaus Furniture, ConcentraHealth Services, Mattress Firm, KineticFurniture, and Party Supply Store asseen in the table to the right.

HOUSTON RETAIL MARKET STATISTICAL SUMMARY

Q1 2013 ABSORPTION

Tenant SF Occupied

Main Event 55,000

Sprouts Farmers Market 28,027

Arhaus Furniture 19,339

Concentra Health Services 10,054

Mattress Firm 7,500

Kinetic Furniture 5,000

Party Supply Store 4,800

Freeway Insurance 3,800

Best Friends Veterinary 3,750

Freddy’s Frozen Custard & Steakburgers 3,077

Rentable Area

Direct Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

Q1 2013 Net Absorption

Q4 2012 Net Absorption

Class A Rental Rates (in-line)*

Strip Centers (unanchored) 31,660,706 3,247,064 10.3% 14,888 0.0% 3,261,952 10.3% 17,913 34,865 $20.00-$35.00

Neighborhood Centers (one anchor) 68,661,126 7,111,141 10.4% 163,650 0.2% 7,274,791 10.6% 223,963 152,716 $20.00-$32.00

Community Centers (two anchors) 41,037,321 2,446,997 6.0% 113,311 0.3% 2,560,308 6.2% 111,506 128,330 $15.00-$30.00

Power Centers (3 or more anchors) 20,486,964 1,043,622 5.1% 71,190 0.3% 1,114,812 5.4% 2,657 113,299 $10.00-$35.00

Lifestyle Centers 4,022,334 266,852 6.6% - 0.0% 266,852 6.6% (8,899) 10,009 $40.00-$70.00

Outlet Centers 1,572,021 124,006 7.9% - 0.0% 124,006 7.9% (2,000) 351,115 N/A

Theme/Entertainment 653,840 224,804 34.4% - 0.0% 224,804 34.4% - - $25.00-$35.00

Single-Tenant 64,367,262 1,531,251 2.4% 33,660 0.1% 1,564,911 2.4% 39,524 341,406 N/A

Malls 29,481,876 1,756,850 6.0% 58,539 0.2% 1,815,389 6.2% 12,101 31,304 N/A

Greater Houston 261,943,450 17,752,587 6.8% 455,238 0.2% 18,207,825 7.0% 396,765 1,127,074

RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET

SALES ACTIVITY

Houston retail investment sales activityincreased between quarters. In thefirst quarter 180 transactions wererecorded, with a total dollar volume ofapproximately $3.2B, averaging $149per SF with an average capitalizationrate of 8.13%.

Some of the more significanttransactions that closed during the firstquarter include:

Phillips Edison & Company purchasedthe 148,963-SF Kleinwood Center fromCharter Hall Real Estate, Inc. in Marchfor $34.5M. The lifestyle center,located in the Northwest submarket,was 100% leased at the time of saleand was purchased as an investment.HEB and LA Fitness are the center’sanchor tenants.

Fry Road Plaza, LLC purchased the19,950-SF Fry Road Plaza, located inthe Far Katy North submarket, fromTexret, Inc. in March for $2M.

Fidelis Realty Partners purchased the273,274-SF Willowchase ShoppingCenter from Wheeler Real EstateInvestment Trust in March for $14M.The community center, located in theFairfield submarket, was purchased as

an investment. Some of the center’smajor tenants include Fiesta Mart,Tuesday Morning, Jo-Ann Fabrics, andMattress Firm.

LEASING ACTIVITY

Houston retail leasing activity for firstquarter 2013 totaled 943,426 SF,compared to 841,061 SF one year ago.Overall, transactions under 10,000 SFcomprised the largest group of retailleases, with the market recording onlyfourteen leases over 10,000 SF andfive over 20,000 SF in the first quarter.

A list of some of the leases signedduring the first quarter are listed in thetable below.

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RETAIL SALE TRANSACTIONS

Kleinwood Center7306-7310 Louetta Rd, Spring, TXNorthwest Ret Submarket

RBA: 148,963 SFBuilt: 2003

Buyer: Phillips Edison & CompanySeller: Charter Hall Real Estate, Inc.

Sale Date: March 21, 2013Sales Price: $34.5M

Sales Price PSF: $232

Fry Road Plaza3616 Fry Road, Katy, TXFar Katy North Ret Submarket

RBA: 19,950 SFBuilt: 2006

Buyer: Fry Road Plaza, LLCSeller: Texret, Inc.

Sale Date: March 13, 2013Sales Price: $2M

Sales Price PSF: $175

Building name/address Submarket SF Tenant Lease date

Sugar Creek Village SC Stafford Ret 40,324 Fiesta Mart Jan-13

Belt West Center Westchase Ret 30,687 Project Cure & Med Benevolence Feb-13

11120 N I-45 Near North Ret 25,000 SuitMart Feb-13

Northwood Village Center North Belt/Greenspoint Ret 10,054 Concentra Health Services Mar-13

Belt West Center Westchase Ret 8,520 Golf Warehouse Feb-13

17685 SH 249 Jersey Village Ret 7,500 Mattress Firm Jan-13

Cypress Plaza Fairfield Ret 5,000 Kinetic Furniture Feb-13

Rose-Rich Shopping Center Far Southwest Ret 4,800 Party Supply Store Jan-13

16606 Stuebner Airline Rd Far North Ret 4,137 Spring Auto Glass Feb-13

Mason One Plaza Far Katy South Ret 4,000 Las Tarascas Mar-13

Golden Plaza Near West Ret 3,800 Freeway Insurance Jan-13

Allendale Shopping Center Near Southeast Ret 3,600 Zumba Fitness Jan-13

Clear Lake Shopping Center NASA/Clear Lake Ret 3,500 Market Seafood Jan-13

Q1 2013 Top Retail Leases

RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET

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LISA R. BRIDGESDirector of Market Research HoustonDirect +1 713 830 2125Fax +1 713 830 2118lisa.bridges@colliers.com